To Pay or Not to Pay: Measuring Risk Preferences in Lab and Field

Individual risk preferences are relevant for understanding daily decision-making. While measuring them in the field is critical for policy, current methodologies tend to be costly, which in turn reduces their use in the field. For example, the risk preference measure of Holt and Laury (2002) relies on a dozen of choices among lotteries involving monetary payments. There are three important issues with this type of measurements: i) the procedure is long and therefore time consuming, ii) paying to subjects is costly and iii) solving lotteries at individual level generates inequality among participants. While the first two issues create economic problems, the latter raises moral concerns. This study tests a short version of the Holt and Laury (2002) measurement, relying on hypothetical versus monetary payments as payoffs. Moreover, we test its reliability in both lab and Field settings in three countries. Our study shows that the short and long version of HL produces the same results in the lab. Using the short HL version in the lab (Spain) and Field (Honduras and Nigeria), we observe that paying or not for the measurement of risk preferences produces the same findings. Thus, our low-cost approach makes the measurement of risk preferences simpler, faster and cheaper in the lab and field. Our study was pre-registered before data collection took place in the three countries.